1. Macro headwinds from the Fed
Besides the external factors, the Ethereum network has faced withdrawals from its smart contract applications, which also put the June rally in check.
Investors now question whether the tailwinds from Bitcoin’s $BTC ETF requests have faded, opening room for a correction down to the $1,700 level last seen on June 16.
The recent macroeconomic events may provide some hints, including the, U.S. Gross Domestic Product grew by an annualized 2% in the first quarter, Germany’s Consumer Price Index increased 6.8% in June versus the previous year, and The China Caixin global services purchasing managers’ index (PMI) reporting activity expansion.
Thus, strong economic indicators have heightened investors' expectations of further tightening measures from the U.S. Federal Reserve.
Fed Chair Jerome Powell's suggestion of two more interest rate hikes in 2023, coupled with the increasing cost of capital and higher returns on fixed-income investments, have diminished interest in cryptocurrencies.
2. TVL nears 3-year lows as network demand falls
The Ethereum network is likely facing its own challenges, particularly after co-founder Vitalik Buterin stated on June 29 that he does not stake all of his Ether due to the complexities associated with multisignature wallets.
The total value locked (TVL), which measures the deposits locked in Ethereum's smart contracts, reached its lowest level since August 2020. The indicator declined by 3.1% to 13.7 million ETH in the 30 days leading to July 4, according to DefiLlama.
A lower TVL means either investors are losing interest in the network's smart contract use or have moved to layer-2 alternatives in search of lower transaction fees. Either way, the potential demand for the Ethereum network is negatively impacted, thus being interpreted as bearish.
3. ETH price gains fueled by leveraged longs
Analyzing the positions of professional traders in ETH derivatives is crucial to determine the likelihood of Ether's price surpassing the $1,970 resistance level.
There are occasional methodological discrepancies between different exchanges, so readers should monitor changes instead of absolute figures.
Despite Ether trading within a narrow range of $1,815 to $1,975 since June 22, professional traders have increased their leveraged long positions in futures, as indicated by the long-to-short ratio.
At crypto exchange Binance, the long-to-short ratio sharply increased, from 1.14 on June 20 to 1.30 on July 4. Similarly, at OKX, the long-to-short ratio also increased from 0.76 on June 20 to a 2.25 peak on July 4, favoring leveraged longs.
To exclude externalities that might have solely impacted the Ether futures, one should analyze the ETH options markets. The 25% delta skew indicator compares similar call (buy) and put (sell) options and will turn positive when fear is prevalent because the protective put option premium is higher than the call options.
